Do Kwon had the right idea, banks are risk to fiat-backed stablecoins: CZ

Given Silicon Valley Bank’s direct involvement in destabilizing USDC prices, CZ blamed banks for increasing the risks of stablecoins.

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The death spiral of the Terra (LUNA) and TerraUSD (UST) ecosystem served as a catalyst to the 2022 bear market — causing losses in the millions, damaging investor sentiment and intensifying the regulatory spotlight over cryptocurrencies. However, the recent depegging of Circle’s USD Coin (USDC) led Binance CEO Changpeng ‘CZ’ Zhao to believe that traditional banks are a risk to stablecoins that are usually pegged 1:1 with fiat currencies, like the US dollar.

On March 11, Circle disclosed that Silicon Valley Bank (SVB) did not process its $3.3 billion withdrawal request. The crypto market responded to the revelation by selling off their USDC holdings, causing the US dollar-backed stablecoin to lose its peg. Given SVB’s direct involvement in destabilizing USDC prices, CZ blamed banks for increasing the risks of stablecoins.

Supporting CZ’s sentiment, a community member pitched the idea of a crypto-backed stablecoin. CZ responded by highlighting the defunct algorithmic stablecoin launched by Do Kwon, saying:

“Do Kwon actually had the right idea, but just failed miserably on execution.”

Moreover, according to CZ, fiat currencies — in themselves — are a risk without getting crypto into the equation.

While numerous jurisdictions have sought legal actions against Kwon, the entrepreneur continues to reside in a safe haven unknown to the authorities.

Related: Circle’s USDC instability causes domino effect on DAI, USDD stablecoins

Many investors foresaw the possibility of USDC depegging and decided to sell their holdings to avoid losses. However, for one such investor, a hasty decision led to a loss of over $2 million.

Instead of selling their USDC holdings in a liquidity pool for a 6% slippage, the investor chose to go for a “questionable ” method that eventually led to a maximal extractable value (MEV) bot netting $2.045 million in profit after paying $45 in gas and $39,000 in MEV bribes.

Source: cointelegraph.com